AVEVA Group plc

Matt Springett - Head of Investor Relations Craig Hayman - Chief Executive Officer James Kidd - Deputy CEO and Chief Financial Officer

Will Wallis - Numis Stacey Pollard - JPMorgan James Goodman - Barclays Michael Briest - UBS Charlie Brennan - Credit Suisse George O'Connor - Stifel Josh Tilton - Berenberg Capital

Good morning everybody and thank you for joining us to discuss AVEVA's results for the six months to 30 September 2018. Before we start, I'd like to draw your attention to the Safe Harbor statement on Slide 2.

And with that I'll hand over to Craig our CEO.

Thanks Matt and good morning everybody. Thank you again for joining us on our first half fiscal '19 results.

This is Craig Hayman. I'm going to give a quick outline of the results.

James will then provide more insight into the numbers and an update on the integration. And I'll be back to wrap with a market update on progress against our medium-term targets..

Let's take a look at the summary. In the first half of fiscal '19, it was a good start for the year for AVEVA.

Revenue grew by 13.9% at constant currency, and margin improved by 510 basis points, also at constant currency. We saw strong customer demand with over 1,000 customer orders signed with very strong growth in Asset Performance Management and strong growth in Engineering.

Our partnership with Schneider Electric provided us with deep insight and market access into this idea of the digitalisation of the industrial world through the EcoStruxure platform, which is powered by AVEVA. The integration of heritage AVEVA and heritage Schneider Electric software businesses remains on track with significant progress in the half on product integration, operational integration and sales execution, which was strong in the period..

We made progress towards the medium-term targets outlined at the Capital Markets Day and created economic value for our customers and investors. We continue to see companies in the industrial sector seeking out the best practices and solutions that they need to drive their digital transformation and our solutions are well-positioned to help these companies do just that while leveraging the secular trends of Cloud, Industrial IOT, Big Data, Mobility and Virtual or Augmented Reality.

AVEVA's portfolio and experience is unique. It’s differentiated in the market.

From engineering that integrates process engineering and engineering design, to Asset Performance Management, which collects disparate operational data elements without rip and replace, analyses that data and then visualises it to make it operationally actionable. AVEVA is a leader in the market.

I'm so pleased with what we’ve done so far and excited about what lies ahead. With that over to James for the financials and integration update.

Thank you, Craig and good morning everyone. Thanks for joining the call.

And I'll take you through the financial review before handing back to Craig. But before we get into the numbers, I just wanted to speak about the basic presentation of the numbers in the interim statement.

I'm sure you've seen that we've included pro forma numbers as well as the statutory results in the interim statement similar to the full year. The statutory numbers are prepared on a reverse acquisition basis which means for accounting purposes the Schneider Electric software business acquired the heritage AVEVA business on the 1st of March.

Whilst the statutory results for the six months through September '18 include both businesses the corresponding period last year when they include the SES business, which also is not particularly helpful in understanding the underlying trends. So we therefore presented pro forma numbers for the combined group for six months through September '18 on an adjusted basis with equivalent comparative period to December '17.

And these are numbers that we we've used in the presentation. Also as explained in the announcement under the acquisition accounting rules, we had to make a fair value adjustment to deferred revenue in the statutory numbers of approximately £6.5 million.

In the pro forma, you'll notice that revenue number has been adjusted to back to the underlying growth. This is a common adjustment often seen in software M&A.

I should also say that the numbers presented for under the new revenue recognition standard IFRS 15 which came into effect for AVEVA from 1 April and the comparative period have been restated accordingly. I have more on this later in the presentation.

And you'll also recall that the full year results back in June we provided a breakdown of the numbers between Heritage AVEVA and Heritage Schneider. This has become less meaningful as the businesses have become more integrated and therefore we have not disclosed the split in the interim results.

Moving on and just looking at the first half highlights. Here are some of the key numbers and you can see that we have a strong revenue performance, in the first half, the revenue up 10.9% to £343 million.

The growth came from a very strong performance from the Heritage AVEVA business and mid-single digit growth from the Heritage Schneider Software business. The constant currency growth was 13.9% as we faced an epic headwind of approximately 3% due to the U.S.

dollar. The performances were driven by strong sales execution which was impressive given the integration of the sales teams also happened during the first half.

There were a few moving parts in the strong top-line performance. The timing of contract renewals and the benefit of some multiyear contracts and I'll cover those in more detail later in the presentation.

As a result the underlying growth rate in the first half on a constant currency basis was 8.5%. Strong revenue performance flow through to profit through strong operating leverage as adjusted EBITA up 54.3% to £60.5 million.

As also we can see the profit margin up 490 basis points to 17.6% and a corresponding growth of over 40% in adjusted diluted EPS. The Board is proposing an interim dividend of £0.14 per share.

You will recall that we rebased the interim dividend weighting back in FY '17 what has increased to £0.13 per share and the FY'18 interim dividend were wrapped up into the return of value related to the combination earlier this year. We are now back to normal, and going forward expect the '18 to be approximately one third, two thirds between the interim and final dividend.

And we also confirmed at the recent Capital Markets Day that AVEVA will maintain its progressive dividend policy. And finally, the business continues to have a strong balance sheet finishing the first half with £81.8 in net cash.

So let's look at the pro forma income statement. As I said, revenues up 10.9%, £343 million driven by strong sales execution.

In addition there was a small number of customers that renewed their contracts in the first half compared to the second half of last year thus bringing the revenue forward. There are also some multiyear contracts where a larger proportion is recognized upfront.

I'll provide more details on costs later in the presentation but as you can see OpEx increased by 7.7% on a constant currency basis mainly due to higher sales commissions and bonuses and higher admin costs. Strong revenue performance has driven the strong growth in adjusted profit before tax and the margin has improved by 490 basis points.

Adjusted tax rate was 21.3% for the first half and we expect the full year rate to be slightly less than our previous guidance of around 25%. Turning to revenue by geography where we saw growth in each of our regions; the standout performer was EMEA, which grew over -- just over 24% in constant currency in the half where we generally saw better conditions in oil and gas helped drive growth and a couple of large contract wins.

One was for AVEVA Marine for a German shipyard involved in the design and construction of cruise ships. The other contract was a major renewal with a global EPC combining both the process design tools from Schneider and the engineering tools from Heritage AVEVA.

In the Americas, the region grew 11.1% in constant currency with indirect channel being the main driving force behind the growth particularly with Wonderware. And we also saw a good growth from asset performance management.

In Asia Pacific there was a tougher comparative due to some large initial license fees in marine in the previous year. But despite that the business still grew 4.8% in constant currency with China being strong.

Let's move on and look at the breakdown of revenue. Recurring revenue increased by 21.5% in constant currency terms £177.2 million this represents 51.7% of total revenue which was 350 basis points up on the comparative period.

You recall our reported recurring revenue for FY '18 was also just under 52%. The reason we're not showing higher recurring revenue in H1 is because most of our renewals happened in the second half.

As we said at the Capital Markets Day, our medium term target is to get recurring revenue to 60%. And whilst it's early days, we have made good progress towards that target.

Support and maintenance was up 4.8% in constant currency is driven by a strong performance from the indirect channel. In the Americas, there was a small number of customers switched from support and maintenance to new rental contracts as part of a bigger sale and that was a drag on the support and maintenance growth that obviously helped boost the growth in rental and subscription.

Rentals description grew very strongly up 52.9% in constant currency benefiting from the focus on growing recurring revenue, but also some benefits from the multiyear contracts and the early renewals I mentioned previously. Excluding these items, the underlying growth rate in rental and subscription was still around 18%, which is still very pleasing.

Initial license fees grew 7.1% in constant currency with a strong performance from the indirect channel for monitoring and control products and the large marine deal in EMEA offset by tougher comparative in Asia Pacific. And finally, Training and Services had lower growth at 6.6% in constant currency.

We saw growth in EMEA from implementation projects for engineering tools and in Americas from asset performance management offset by a decline in Asia Pacific due to fewer projects in the midstream oil and gas. I thought it would be helpful to set moving parts within the overall revenue in the first half.

But here we've shown our revenue bridge covering the different elements that highly contributed to growth. Starting on the left, we have last year revenue under IAS 18, the previous revenue recognition standard.

By implementing IFRS 15, we reduced last year revenue by 2.3% which gives us a new base of £309.4 million. As I mentioned earlier there were renewal contracts that renewed early which contributed 2.7% to grow.

Then we had 2.8% benefit from a small number of multiyear contracts with the license element is recognized up front here. Here we've shown the difference between the revenue recognized under multiyear contract and what it would have been under our one year deal.

And I just wanted to cover the impact of these multiyear contracts. I'd just say that we've always had a few of these in the past particularly with the global account customers in Heritage AVEVA and the sim side business in Schneider Software.

The difference is neither on these longer term deals which are non-accountable, IFRS 15 drive more revenue recognition upfront. Typically on a five year contract, we will recognize approximately 50% upfront with only 20% of the cash received that starts the contract representing the first annual payment.

It's important to say there is no change in the cash profile of these contracts. This is now a feature of the enlarged business and whilst these non-accountable contracts due to a different revenue profile perhaps compared to the past, commercially it is absolutely the right thing to do to lock customer in and secure pricing.

And finally, on the bridge, the FX headwind which is a drag of 2.9% to growth. Taking all these factors into account the underlying constant currency grew 8.5% in the first half.

We think it's a very good performance in line with our targets and a solid start for the combined group. To be honest, once we cover off IFRS 15, we adopted the new standard with effect from 1 April, 2018, and we've had to restate the comparative period with September 2017 revenue been reduced by £7.8 million and FY '18 revenue have been reduced by £12.1 million.

And there is a Slide in the Appendix, which will show you the detailed movements. And as I mentioned previously, the main impact on our revenue recognition policy is around how large multi-year contracts are recognized.

So let's move on and now look at the cost base. Total adjusted operating costs increased by 4.7% in reported terms or 7.4% in constant currency.

Cost of sales increased by 6.9% in constant currency broadly in line with the increase in training and services revenue, the gross margins improving to 72.9% from around 71% last year. Research and development costs were £54.2 million which is up 1.6% in constant currency.

We were able to increase to keep the increase to blue inflation due to tight cost control and some benefits from the synergies are beginning to accrue. SG&A was up 10.4% in constant currency, selling cost increased due to higher commissions due to the revenue outperformance and higher costs from the combined sales and customer events that were held during the year offset by some of the benefits from the restructuring.

Administrative costs increased due to higher bonuses, FX losses related to retranslation and some other costs. We had to invest in support functions such as IT, HR and finance to build capability given that [indiscernible] that were not covered in the transition service agreement with Schneider Electric.

In terms of the second half, we continue tight control of our cost and really focus on delivering into synergy targets we have set. We believe that we keep the cost in the second half broadly flat for the first half.

And moving on to -- just look at the cost items we have excluded from the statutory numbers in arriving at the pro forma. First of all amortization and intangibles was £43.8 million compared to £24.3 million, this is because the increase in tangible assets [indiscernible] the combination with Schneider Electric software business; acquisition and integration cost were £7.8 million mainly related to consulting costs and temporary resources for the integration.

Restructuring costs related to the cost of severance incurred in the first half and either of these costs of £10.7 million incurred from acquisition, integration and restructuring approximately £7 million with pay back in cash during the first half. Moving on to the balance sheet, we continue to have a strong balance sheet, but I just wanted to highlight some of the key movements.

Contract assets have increased by approximate £10 million driven by the multiyear contracts; contract liabilities were £128.6 million at the end of September '18, which is broadly flat compared to September '17. The main difference to the balance of 31 March is due to the seasonality renewals where there's a large number of renewals for rentals in the Heritage AVEVA business in Q4 and the support and maintenance renewals for the SES business are typically build in Q3.

Net cash was £81.8 million at 30 September, 2018, which is after the final dividend of £43.5 million paid out in the first half. And we've drawn £10 million under the revolving credit facility.

Turning to the cash flow as you can see cash from operations was down compared to the comparative period of £44.5 million, there were three factors impacting that; first we paid out approximately £5 million more of exceptional items in the half compared to the previous year for consultancy costs and severance. Secondly, on the back of the strong performance for FY '18, we paid approximately £7 million more in bonuses in the first half.

And finally, there was an increase in the contract assets due to multiyear contracts. And finally, a short update on integration.

We continue to make good progress on the integration and it's on track and where we expect it to be. We've established a new organization and filled some key roles including recently a Chief Information Officer and Chief Marketing Officer who has joined the team.

We've made significant progress on product integration during the first half and Craig will cover that in more detail later. The integration of functions is going well with sales and R&D, the most advanced -- and we are in the process of transitioning away from the transitional service agreement with Schneider Electric and have exited over half of it already.

On real estates, we have closed seven offices and consolidated SES staff and AVEVA staff into the same location. There's still work to do there with fellow sites to be consolidated over the next 18 months or so.

Looking forward, reengineering our business processes for a large company is a key area focus and in fact just as yesterday we have launched the new CRM application and work on the ERP project is progressing well. In terms of revenue and cost synergies, we are on track with those having made good progress during the first half and we'll provide you with more details at full year.

To sum up, I am very pleased with a good performance in the six months, we made a good start and financially is a good platform to build upon. We still got a lot work to do but we look forward with confidence.

Thank you for your attention. I'll now hand back to Craig for his review.

Thank you very much.

Thanks James. Thanks very much.

I'm going to give an update against the market backdrop that I outlined earlier and the progress that we have made on our medium-term targets. We've covered how the industries that AVEVA serves are making increasing use of technology.

And this is being driven by ongoing secular trends that result in growth for and demand for industrial software. Other industries such as IT, finance and retail have seen the benefits of digital technologies and are highly penetrated with technology already..

But within the industrial sector it is still very early with Capex and Opex projects seeking out the best practices to apply technology for cost savings, speed and certainty. To understand the scale, consider for example, that one of our customers, just one, announced a CapEx program of $130B just earlier this month..

And it’s within that market context that Aveva focuses with a unique and differentiated product portfolio and expertise. Let's cover how the portfolio performed in the first half.

We have integrated the heritage AVEVA business and heritage Schneider Electric software business into four integrated business units within AVEVA. These are engineering, monitoring and control asset performance management, planning and operations.

Now All business areas grew with a context of stable end market conditions and the macro trend towards digitalisation. Engineering delivered strong growth and made the greatest absolute contribution to growth, followed by Asset Performance Management, which delivered very strong growth and was the fastest growing area in percentage terms.

Monitoring and control grew low single digit with good performance from channel sales, particularly from Europe and North America. AVEVA won contracts with customers across a range of sectors and also with Schneider Electric.

Planning & Operations included the impact of lower services revenue and significant orders with customers from sectors like Food & Beverage, Mining and Oil & Gas. These businesses areas are each now cloud enabled and sales of Cloud products grew strongly across the portfolio including demand from our top 100 customers.

Let’s spend a moment on Asset Performance Management and Engineering. I’ll refer to Asset Performance Management as APM.

This is the fastest growing area of the portfolio and includes the PRiSM and AVEVA NET products. The product line quickly snaps onto the data streams coming out of an industrial environment - that includes both real time and historical data from a wide swath of disparate endpoints.

That data is then collected either on premises or on the cloud where machine learning and analytics are applied to detect unplanned downtime before it occurs. The anomaly is first made visible and then actionable in terms that are relevant to a user..

Our focus on pragmatic uses cases like the handover of a shift is getting really good feedback from customers.. New customer wins in first half included Akere BP, Air Liquide, MV Werften, Chevron and a large Middle Eastern energy company that was an expansion from monitoring and controls to APM, very strong growth in this business in the first half..

Engineering. And strong growth here across a range of markets with customer wins at KBR, MV Werften and EDF.

We’ve made good progress on integrating process engineering and engineering design which is a unique combination in the market. And in the first half we delivered the engineering tools so they are now available both on premise and in the cloud And we're really very competitive when this tool suite runs in the cloud.

So let's turn now to the medium term targets. Just a reminder at the Capital Markets Day we committed these targets remain on track towards them, they are, revenue at least in line with the industrial software market that we estimate going around about mid-single digits, an increase of our recurring revenue as a percentage of overall revenue, and growing our adjusted EBIT margin to 30%.

Let's take a look at each one of them of how we’ve done on driving recurring revenue growth. In the first half, our recurring revenue increased due to strong rental sales largely in engineering where some customers moved away from the initial or perpetual model.

And we're pleased with the increase to 51.7% of sales from 48.2% of sales in the prior year. And we're working to keep this momentum going for the full year where the rental percentage tends to be higher because of the heritage of AVEVA sales being weighted in the second half.

And the monitoring controls subscription product line will also be launched in the second half of the year. I'm sorry I skipped the recurring revenue chart, hope will come back to it in a second.

And our revised sales incentives will be put in place for next year, a move that -- we are hopeful that that will accelerate our current revenue growth. I'm sorry so that was recurring revenue.

Let’s go back to revenue growth, I'm sorry. So on revenue growth.

Our performance in the first half was driven by strong sales execution both in the channel and with direct sales. The product portfolio is coming together nicely with the delivery of integrations, technical integrations within each product portfolio, and we also had good visibility in the market of the new AVEVA, more awareness of the new AVEVA, with marketing and thought leadership events in Amsterdam, Dallas, Palm Springs to name a few.

And ahead of us is the benefits of the single Salesforce.com system that James talked about for better lead to revenue processes that will be online now with improvements that will flow through from that around pricing, marketing effect and sales incentives ahead of us in the medium term roadmap. We're also pleased as James mentioned to welcome Lisa Johnston as our new CMO, who joins us from Vista Equity and is perhaps one of the very few marketing leaders who also happens to have a degree in chemical engineering.

Good progress on driving revenue growth. Let's go to margin, our operational leverage drove a 510 basis point improvement in margin.

Our cost saving programs are on track with benefits expected to show through in the second half. And we have also worked to align cost management and incentives to focus on delivering profitable growth.

–Let’s bring that all back together and go to the final chart which is around the outlook. This is a very different business than that existed 12 months ago.

It has been diversified by geography, the Americas, Europe and Asia Pacific, by industry less than 45% in oil and gas, but also penetration in other industries such as food and bev that I've talked about here today. And by product line, the full product line areas that I talked about with operational rigor around each of those product lines and each of the operational geographies.

A good start to the year in terms of financial results which are in line with the Board's expectations, integration is on track, Schneider Electric relationship is working well and we had really good response from customers and prospects on the new AVEVA which has been pleasing. Our outlook is that the progress that we made in delivering a solid first half underpin the Board’s confidence in its full year expectations.

Second half has a tough sales compare, that’s related to a large multi-year contract that we’ve previously discussed.. But the Board is encouraged by progress on the recently announced medium term targets.

Our progress on integration and remain confident in the full year expectations. So with that let's open it up to Q&A.

Morning. Thank for your time.

Could you talk a little bit more about the move to subscription pricing on the monitoring and control side of things, how fast you expect to be able to roll that out to your customer base and to what extent have you road tested your plans?

Thanks Will. This is Craig.

So on subscription, well, you're asking about monitoring and control, which is -- we're highly -- have a large progress on subscription or rental in the engineering business, monitoring and controls when we highlighted at the Capital Markets Day that it has our attention. We are working hard on the introduction of the new subscription offerings that would be a choice you'll be out of customers -- you'll be able to buy either through their traditional means or through subscription means.

We're working hard on delivering that and expect to have those offers available for customers this quarter sort of before the end of the calendar year. We've engaged in quite a bit of discussion with our business partners because a large part of that business goes through the channel to ensure that they are supportive of the move.

And so far we've been had very positive feedback with that. So I think we'll have more as we -- more information for you Will as we come out of this calendar year into early next year when we get the sort of first responses to some of those new packaged offerings.

I think our focus on subscription is that this is a transition for our customers. We want to provide them choice.

We think there's a lot of flexibility around subscription. Also, they are able to tap in a lot of the benefits of flexibility that subscription brings to them, but of course, it's going to take time for us to learn how to express that in the market and it's going to take time for our customers to fully appreciate and understand that.

All right. Thank you.

Hi. Thank you.

Two questions for me. Can you talk about cross-selling how that's going for example any extra engineering customers in the U.S.

of the Schneider installed base or maybe an APM, or any examples of other revenue synergies. And then, second question, can you tell us what you're doing with EDF?

It seems that they're going through a pretty large digital transformation with several vendors so curious to see what you're doing there?

Yes. Let's take the cross-selling example.

And Stacey for me -- I've certainly cut this before when I think of cross-selling, I think about more broadly, it is the sales team being more productive. Are we producing more revenue, more bookings as a result of the hour ahead than we were before.

And the answer is in the first half to that at that level. Absolutely the sales team was more productive in the first half this year versus 12 months ago.

In terms of cross-selling, we did talk about one of our customers here a large Middle Eastern energy company. This was a company that was monitoring and control customer and we cross sold there or as the customer would say, we delivered more value to them.

From monitoring and control to asset performance management, and then, planning an operations. So think of this as two cross sales occurring into that same account.

We've done that to other customers coming from the engineering side as well from some of the customers that you see listed on asset performance management, you'll notice many of those customers such as MV Werften, Chevron and KBR are also engineering customers. As it relates to EDF, look, when I say never confuse our press release with reality.

But there is a lot of vendors out there putting press releases out about winds and EDF is one of them. And it seems like every vendor is putting on a press release about EDF and that's good for them.

But in reality EDF is a very large business and they're a long standing customer for AVEVA for our design tools and we don't see that relationship changing at any level. I know they do a lot of PLM just from my prior life and the PLM as a competitive front we don't participate in that but that's up to those other vendors.

Like I think of this, Stacey, around EDF is all of these customers are working hard to accelerate their own digital transformation and they're looking for vendors, have a point of view can help them on that transformation and that's certainly helping us at EDF and indeed other customers around the world.

That's great. Thanks.

Good morning. Thank you.

I'm thinking about the H2 outlook for the business. You've been very clear in splitting the underlying growth from the non-recurring impact -- the phasing in the multi-year deals.

However that was a meaningful step up in both the Heritage Schneider business and Heritage AVEVA is remaining strong on an underlying basis as well. So really I just wanted to get a sense from you as to whether you anticipate pretty similar underlying trends excluding those factors in both parts of the business in the second half?

And related to that as a follow-up, there is a lot of discussion around the correction in the oil price recently. It's only back to levels from the beginning of the year, but I thought an opportunity perhaps for you to comment on how you see the relevance of the oil price fuel business today?

Thanks.

You want to take James?

Yes. Take the first one, its James.

As you saw in the Investor Day, we provide the revenue bridge which broke out some of the moving parts underlying growth was 8.5%. In the second half, we have a tougher comp in the business last year really picked up fairly dramatically in the second half in both sides of Schneider and AVEVA.

And we also -- if you recall has the large EPC contract in the second half of last year. So we haven't -- we definitely have a tougher comp.

So I think when you look at the various factors in the range, we're thinking around mid single-digit in the second half type growth that we would expect, but that I would say there's a number of moving parts to that. Just on the oil price comment…

That's on an underlying basis mid-single-digit, sorry, just to clarify.

Yes. On the oil price, we're not seeing any impact on our oil and gas business from the recent fall in the oil price.

Craig and I both attended an oil and gas conference in the Middle East last week. Sentiment there is still pretty positive.

A lot of interest in digitalization. We've got a lot of interest from customers around our offering really positioned well with other operators on the EPC.

So short answer we're not seeing any short-term impact, but I'll say we'll continue to monitor that closely.

If I can just add onto that last point. I just want to put these spend levels in context.

So we highlighted that the opportunity that AVEVA play into is roughly about a £15 billion pounds, our market opportunity. That is a small fraction of the total spend of CapEx.

So CapEx and oil and gas which is only less than 45% of our business. If you think of CapEx by different estimates, let's say it's $250 billion a year in CapEx.

So you can see even at a conservative level of spend on CapEx and oil and gas, we're really sort of competing for the digital side of that. So yes there was -- awareness of the puts and takes on the broader oil and gas markets.

But the digital transformation is a trend that is occurring independent of the overall spend. But in fact, the last downturn in oil and gas, what it did is, it drove a lot of focus on innovation and that's why we see digital transformation as being on the agenda of these companies.

One company last week talked about oil and gas 4.0. That was their term for describing sort of Industry 4.0 as applied to oil and gas.

We see a lot of activity there.

All right. Thank you.

Yes. Thank you.

A couple for me as well. Sort of James touched on the top-line there.

In terms of the profitability you've had a very strong year-on-year increase in pro forma EBIT, to what extent is that sort of driven by the timing of multiyear deals and rental deals being brought forward. So how much of that is sustainable into the second half.

It's basically what I'm asking. And then secondly, in terms of the sales execution of the Heritage SES business, Craig can you sort of talk about what your observations have been.

I guess that's a less well-known part of the business than AVEVA Heritage. And in terms of the transformation on the cost side, I think you said the half of the transformation agreements with Schneider have been exited now.

Is that sort of on track or ahead of track? Can you sort of say something on that?

Thanks.

Okay. We will take profit first.

Yes. In terms of the profitability, yes, we saw very strong profit growth in the first half.

Bear in mind, the weighting of the revenues is skewed more towards the second half and any outperformance in the first half it does drop through how much that's sustainable into the full year. Suddenly we will have those costs coming through in the second half of the year, but we don't think all that outperformance will drop into the full year, but we should see some of that carry through.

Okay. My question on your question Michael on sales execution on the Heritage Schneider Electric Software business.

I'm not going to switch from talking about Heritage Schneider Electric Software business to the business units because we've aligned the large parts of the Heritage Schneider Electric Software business into the monitoring and controls business. But also parts of that business have been aligned into the engineering business.

So for example the process simulation is in now in the engineering business unit that you heard did quite well. But typically, the route to market are different between these businesses.

So monitoring control which is where the bulk of the Heritage Schneider Electric software business monitoring and control that's Wonderware and family product. A large driver of that business is the channel, the sort of indirect channel and there was a good performance from channel sales especially in Europe and North America.

And also with Schneider Electric itself, Schneider Electric is -- we sell to Schneider Electric and we sell through as in, they act as a distribution partner for us. And we saw good progress through them as a channel partner.

As I said before low single-digit rate, it's an area that has our attention back to the earlier question about subscription. We're intent on delivering the subscription option there for those customers, but really a lot of work ahead of us on monitoring and control.

And then, James maybe I'll talk about the TSAs or you want to take that?

Yes. On the TSAs, it's on track to where we would expect it to be.

The TSA agreement expires two years, the other to deal in 5 March, 2020. There are still a lot to do on that.

For example, real estate there's still a number of offices where we will move out of the Schneider office into our own office and combine the headcount. Houston being a good example just coming up next year and other services such as IT and HR will continue to transition away from the Schneider services over the next 18 months.

But it's on track where we would expect it to be.

All right. Thanks so much.

Great. Thanks for taking my question.

Just a couple actually. Firstly, there's been a lot of discussion on the cool around the phasing of multiyear contracts.

Is there a specific sales agenda and target in place to increase the volume of these multiyear contracts? And does that mean the contract assets and the balance sheet continue to grow faster than the revenue?

And then, just as a second question, you touched on a traditional maintenance stream resigning as a rental contract. Can you just talk us through the dynamics of why a customer does, does it increase the flexibility for him and by definition reduce the stickiness and recurring nature to you?

Okay. I'll take those.

Sure.

Yes. On the multiyear contracts Charlie, we do those really selectively and it's typically the global account to major customers that typically enter into multiyear contracts.

The customers want it from their perspective because it gives them certainty on pricing from our perspective obviously locks the customer in and provide certainty to often better visibility. So commercially these are absolutely the right thing to do.

Unfortunately, the new accounting rules, it does drive this to revenue recognition, which is not always ideal, but we do it selectively and very conscious of managing the years in terms of growth and expectations. So I think in terms of contract assets, again, because of the profile of revenue versus cash, there will be some movements in contract assets from period to period.

Again, these contracts are with blue chip well-established company. There's no issue at all with a collection of cash in those customers.

And it's something that we manage pretty closely. Just on this specific point on the customers who've moved from support and maintenance contract to rental contract there's only really about half a dozen of those mostly in the U.S.

Typically situations where the customer will be using one or two products under a support and maintenance contract. So the [indiscernible] software on initial license or perpetual in previous years.

And now they want to expand the usage of products across the portfolio and rather than having contracts split between support and maintenance and rental they choose to move onto rental contract which means the renewal date is all aligned and the usage model is aligned, so they can flip between the different products. So it's really a customer driven thing behind this and again it's a relatively small number of contracts where this has happened.

Let me add on James. I'll pick on -- this area of the product line, the fastest growing part of the product line is asset performance management.

One of the areas -- the product there is something called PRiSM. In August, we released PRiSM, SaaS a cloud version of PRiSM where you can deploy it into a cloud environment as an option.

And of course, when it runs in a cloud environment -- it's on -- essentially a rental subscription model. Of that new feature that was delivered there were five customer implementation since it was available -- made available in late August.

And of those five customer implementations, four of them were in the cloud and there's more in our pipeline. So basically customers getting speed to delivery, very short time to value, easy access for their customers and the users can very quickly see their data.

So there's a lot of that -- customers get the value from the software when they use it not when they buy it. And of course, the subscription model brings them closer to the time when they pay for it, when they use it, but it's really quite compelling for the customer.

And of course, our focus is ensuring that when they use it that they have the best practices, so they're effective when they use it. So that they'll continue to use it and they'll hopefully use more of it or use more of our portfolio.

It really aligns the commercial strategy of the company AVEVA with the commercial strategy of the company that we're working to start. It's quite a good model.

Thank you.

Yes. Thanks for taking my questions.

Just two quickies for me. Firstly, thank you very much for mentioning cloud.

You said it was growing strongly. I appreciate it's a small number, but if you give me a data point around that that would be great.

And for James any view in terms of the current FTE count and what TAM staff attrition is like? Thank you.

This is Craig. I'll take the -- George the question on cloud.

We have -- I previously have shared with you, the work we've done in our research and development team to establish a large number of scrum teams to then prioritize our research and development environment around modern advanced use cases and cloud is very much one of them. We have a series of dev ops, development operations cloud teams that run that are delivering at this point a large bulk of the portfolio in the cloud.

So you can run the engineering tools in the cloud. You can log in, run them in a browser the same way you'd run Office 365.

You can run those cloud engineering tools in the cloud. The asset performance management tools that I talked about also running the cloud, so I covered a cut -- some examples of wins -- recent ones around the cloud.

We're also investing in -- continuing to invest there. And so later this year, you'll see if -- this quarter you'll see new versions of those products or iterations of those products.

Another one back to asset performance management, I'm excited about is the ability to get insight into what we call data lakes, so lakes of data that sit either in another cloud or sit on prem and to help customers run intelligent queries and get machine learning and insight around that data across those systems. Again, that's back in the PRiSM product line.

So this is -- I take Charlie. Stay tuned because there is a -- we're really only just getting started on cloud.

We're excited about the growth number, but it's a small number.

Just your question on headcount, there's obviously some [indiscernible] in the half and we've had here in the restructuring, but we've had to add some headcount into moving to support functions where we have to build that capability in large group. But, net-net headcount in September was broadly flat where it sums the year.

Thank you.

Yes. Hi guys.

This is Josh on Gal. In regards to the earlier renewals, was that just on the AVEVA side.

And did it renew at a higher level than previously expected in terms of maybe total contract value.

Yes. This is actually a combined contract, so it was the process design tools from Schneider and the engineering tool from AVEVA, so it's a combined contract, both the -- customer to boost businesses before -- they were renewed at a higher level compared to what it was previously.

So they are taking on more product and higher usage of seats.

Okay, perfect. And then, just as a follow-up, you guys mentioned in the press release APM achieving competitive wins.

Could you give us some color on who you're going up against in the market?

Yes. Look APM is -- you have GE, you have some other vendors there.

It's a hot market, asset performance management. You'll also have traditional analytics players and what's known as enterprise asset management, EAM that's sort of the old view of the -- sort of rusty view of the market, sort of these aesthetic assets that you're managing.

Asset performance management is a little bit more proactive, a little bit more modern. We play in the asset performance management.

We certainly compete for our business, but we see -- we win, we have a very high win rate versus other vendors out there. I know of no loss that we've suffered against competitors.

But look I want to put that Josh in context. It's a hot market, it's really growing.

I don't -- I really -- most of our time is spent on showing customers the value they can get very, very quickly from asset performance management. That's really where most of our focus is scaling as fast as we possibly can.

Thank you very much.

Well, this is Craig. Let me just -- a few comments and then I'll hand it back to Matt.

Look as we started off this morning, we are very happy with our first half results, it's a very good start for the year for AVEVA revenue and margin growth, strong customer demand, progress on the integration, strong partnership with Schneider Electric that gets stronger every day. And it's this unique combination of software, a software company AVEVA combined with an industrial hardware company Schneider Electric.

We think is very quite differentiated. We think we're about a year ahead of anyone else in the market.

That aligned with good execution and integration around the four business areas has really positions us well for the second half and that you see that reflected in the Board's confidence in our targets for the second half. With that, thank you very much for your time and interest.

And I hand it back to you Matt.

Thank you very much for joining us. If you've got any questions please get in touch later in the day.

Thank you.